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Economic Espionage

Randall Coleman testifies on prosecution for economic espionage.

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Fbi 21, Us 20, America 11, Graham 8, U.s. 7, United States 6, China 5, Mr. Norman 5, Boeing 4, Mr. Hoffman 4, United 4, Whitehouse 4, Washington 4, California 3, Coons 3, Lindsey Graham 2, Mr. Coleman 2, Mr. Gorman 2, Lilly 2, Maryland 2,
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  CSPAN    Economic Espionage    Randall Coleman testifies on  
   prosecution for economic espionage.  

    August 20, 2014
    9:30 - 10:58am EDT  

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post-watergate political reform system. probably, well, among the next items to be discussed and be the most crucial is the current limitation not get dismantled on what you can give to an individual candidate. that maybe next up. >> mike doyle, thanks explain all of this to us and remind to c-span viewers all of the oral art with recovery in december and port are a bit of on our website, c-span.org. >> if you missed any of the oral argument in the case mccutcheon versus fec, we were short again later today at 6 p.m. eastern. tomorrow we'll focus on riley versus california which deals with warrantless searches of mobile phones and will wrap up our weeklong look at supreme court cases with sebelius versus hobby lobby which considered the constitutionality of requiring contraceptive coverage under the health care law. >> here's what's coming up.
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next, the senate judiciary committee looks into economic espionage. in its today's edition of "washington journal." later the house armed services committee hears from defense secretary chuck hagel about the deal struck with the taliban to return sergeant bowe bergdahl. >> lead today booktv is live at politics and prose in washington. baguettes and we liked it on c-span2's booktv at 7 p.m. eastern. >> here are some of the highlights for this weekend.
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>> find our television schedule one week in advance at c-span.org and let us know what you think about the programs you were watching. calls at 202's 663400 or e-mail us at comments@c-span.org. join a c-span conversation, like us on facebook, follow us on twitter.
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>> boeing, and eli lilly pharmaceuticals called on congress recently to address intellectual property and trade secret theft. members are examining how companies are impacted and weathered the artificial laws to punish violators. fbi assistant director of counterintelligence randall coleman also testified. this is one hour 25 minutes. >> [inaudible conversations]
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>> [inaudible conversations] >> [inaudible conversations]
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>> [inaudible conversations] >> [inaudible conversations] >> the hearing of the senate judiciary subcommittee on crime and terrorism will come to order. i am expecting that my ranking member, senator lindsey graham,
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will be here shortly but i just saw him on the c-span screens i know he is on the floor and not here. but i permission from his staff to proceed and he will join us as soon as his schedule permits. i also want to recognize in the audience and we're kind of post spent many a happy hour in him when he's working for chairman leahy. it could have been back in a different capacity. we are having a hearing today that is entitled economic espionage and trade secret theft, our our laws adequate for today's threats? today the subcommittee is going to explore how we can better protect american businesses from those who try to steal their valuable intellectual property. american companies are renowned as being the most innovative in the world. companies of every size and in every industry, from
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manufacturing to software, to biotechnology to aerospace, own large portfolios of legally protected trade secrets they have developed and innovate it. in some cases the secret sauce may be a company's most valuable asset. the theft of these secrets can lead to devastating consequenc consequences. for small businesses it can be a matter of life and death. the risk of trade secret theft has been around as long as there've been secrets to protect. there's a reason why coca-cola has kept its formula locked away in a vault for decades. but in recent years the methods used to steal trade secrets have become more sophisticated. companies now must confront the reality that they are being attacked on a daily basis by cybercriminals who are
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determined to steal their intellectual property. as attorney general holder has observed, there are two kinds of companies in america. those that have been hacked, and those that don't know that they have been hacked. today, a criminal can steal all of trade secrets the company owns from thousands of miles away without the company ever noticing. many of the cyberattacks we are seeing are the work of foreign governments. china and other nations now routinely steal from american businesses and give a secrets to their own companies. their version of competition. and let's be clear, we do not do the same to them. we are now going through a healthy debate in america about the scope of government surveillance, but there's no
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dispute about one thing. our agencies do not steal from foreign businesses to help american industries. while cyber attacks are increasing, traditional threats remain. company insiders can still walk off with trade secrets and sell to the highest bidder, competitors can still steal secrets through trickery or by simply breaking into a factory or office building. it is impossible to determine the full extent of the law -- the loss to american businesses. as a result of the theft of trade secrets and other intellectual property. there have been estimates that our nation may lose anywhere from one to 3% of our gross domestic products through trade secret theft alone. the defense department has said that every year and amount of intellectual property larger than that contained in the library of congress is stolen from computer networks belonging to american businesses and
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governments. and estimates of the valley of ip system by foreign actors are as high as $300 billion. general keith alexander, intel recently the head of nsa and cyber command at the pentagon, has characterized the cyber theft of american intellectual property as quote the greatest transfer of wealth in history here and, of course, we are on the losing end of it. but no estimate and fully capture the real impact of trade secret theft. because when other countries and foreign businesses steal our trade secrets, they are stealing our ideas. they are stealing our innovation. most importantly they are stealing our jobs. in my own state of rhode island to continue to face unacceptably high unemployment. despite having some of the most innovative businesses in the
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country. if we do not protect our businesses from those who steal the intellectual property, we are leading the innovation go to waste and we're letting american jobs go overseas. in the past, some companies were reluctant to talk about this issue because no one likes to admit that they have been victimized. but many are now coming forward to speak out because they recognize how important it is that we work together to address this common threat. i particularly want to thank the company representatives who are appearing before us today in the second panel. as well as many, many others who worked closely with me and with other senators on this issue. i'm encouraged that the administration last year released a blueprint for a strategy to combat trade secret theft. and agencies across the government are increasing efforts to address this problem.
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the administration must recognize that the theft of intellectual property is one of the most important foreign policy challenges we face, and it must communicate to china and other nations that stealing from our businesses to help their businesses is unacceptable. we in congress must do our part. we need to make sure that our criminal laws in this area are adequate and up-to-date. last fall, senator graham and i released a discussion draft of legislation designed to clarify that state sponsored overseas hacking could be prosecuted as economic espionage, and to strengthen criminal protection of trade secrets. we received valuable comments and suggestions about this legislation, and we look forward to hearing from our witnesses
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today about how to improve our laws and what we can do to help defend our industries. and we hope to introduce our legislation in the coming weeks. companies also need civil remedies against those who steal from them. whilst it was traditionally provided companies with remedies for misappropriation of trade secrets, there is currently no federal law that allows companies themselves to seek civil liberties -- remedies against those who steal from the. senators cohen and patch every so introduce legislation to give victims of trade secret that the option of pursuing peace in federal court to senator flake has also introduced legislation to give companies a federal civil remedy for trade secret theft. i hope that the judiciary committee will act soon on legislation to strengthen both the criminal and civil protections against trade secret theft. and i look forward to working
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with those colleagues toward that goal. today, we will hear from witnesses in government, industry, and the nonprofit sector confront the threat of trade secret theft on a daily basis. what i hope will be clear by the end of this hearing is that we need and all in approach to this hearing. we must strengthen our criminal laws, and our law enforcement agencies must privatize stopping trade secret that before it occurs and investigating and prosecute it when it does occur. i will add that there remains an urgent need for us to pass broader cybersecurity legislation, and i appreciate working with senator graham on that effort. i look forward to hearing from our witnesses today, and to working with my colleagues on both sides of the aisle to address this critical issue. our first witness is randall c. coleman, the assistant director of the counterintelligence
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division at the federal bureau of investigation. mr. coleman is responsible for ensuring that the fbi carries out its mission to defeat foreign intelligence threats. mr. coleman began his career as a special agent with the fbi in 1997, and has previously served as assistant special agent in charge of the san antonio division, chief of the counter espionage section, and special agent in charge of the little rock division. prior to his appointment to the fbi, mr. clements heard as an officer in the united states army for nine years ago delighted that he could join us today and we ask them to proceed with his testimony. >> good afternoon, chairman whitehouse, i am pleased to be here today with you to discuss the fbi's efforts to combat economic espionage and theft of trade secrets. the fbi considers the investigation of theft and trade secrets and economic espionage a
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top party. in 2012 alone, the national intelligence executive estimate a range of loss to the us economy approaching $400 billion. to foreign adversaries and competitors who, by a legally obtaining a broad range of trade secrets, degraded our nation's advantage in innovative research and develop an in the global market. this loss threatens the security of our economy and preventing such laws requires constant vigilance and aggressive mitigation. the fbi is diligent in working to investigate and apprehend targets pursuing economic espionage against us-based businesses, academic institutions, clear defense contractors and government agencies. it has made significant progress in putting some of the most egregious offenders time bars. economic espionage and theft to trade sigtarp recently to the insider threat and the growing
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trend of cyber enabled trade secret theft. the insider threat employee may be seeing information for personal gain or maybe serving as a spy to benefit others. foreign competitors aggressively target and recruit insiders to aid the transmittal of a company's most valuable proprietary information. the fbi, however, cannot protect the nation's economy by acting alone. the fbi counterintelligence division strategic partnership program oversees a network of more than 80 special agents that are serving a strategic program coordinators who work hand-in-hand with industry and academic institutions across the country. these strategic partnership coordinators conduct in person classified and unclassified threat presentations and briefings, and it serves as an early referral mechanism for reporting of possible economic that's been notch, trade secrets and cyberintrusion. working through the more than 15,000 contacts nationwide on
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this program helps companies detect, deter and defend against attacks that are sensitive. the fbi takes seriously its role to investigate and every and targets pursuing economic espionage. and by forming close partnership with local, logical businesses and academic and government institutions, the fbi wishes to have greater impact on preventing and deterring the loss of trade secrets before any loss can actually occur. thank you again for the opportunity to testify and i look forward to answering any other questions. >> i'd like to talk to you about a couple things. first of all, have you any specific reaction to the draft legislation that senator graham and i circulated for discussion purposes? >> sir, i will stand on this, if any legislation that allows the
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fbi to have a better advantage at going after our foreign adversaries as it relates to economic espionage, theft of proprietary information, the fbi is in favor of. >> presumably the people we're working with at the department of justice, do you support them speak with yes spent arguments and points they are making? >> absolutely. >> one of the things that i've observed having watched this for a while is that whenever i hear about a case that is brought for an intellectual property theft, in every case that i've found so far there's been some nexus the old-fashioned type intellectual property theft. somebody has taken a dvd home, somebody has taken a patented item out of the factory. we have seen an explosion in pure cyberintrusion and extraction through the
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cybernetwork of intellectual property with no other technique involved. and to my knowledge there have been no charges abroad, ever, against anyone for that kind of activity. i understand that these cases are very complicated. i understand that they have huge forensic issues, that there's an overlay with national security, with the intelligence services it requires a lot of effort to understand that some of the targets are overseas and that creates a whole other a rate of league at and other issues. trust me, having served as the united states attorney i can see how very challenging these cases are to make. but when you have general alexander so we're on the losing end of the biggest transfer of wealth in human history, he would like to see a little bit more actual hard prosecution activity. can you tell me what you think
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is behind that difficulty? is there anything we can do? is a just a resource question? what can we do in congress to start putting points on the board against these people and criminal law court's? >> chairman, i think you described it to a t. obviously, when you get outside of the borders of the united states, and many of these investigations where there's a foreign nexus, our ability to conduct effective investigations is diminish greatly year i will tell you that we do have ongoing investigations that i would foresee as having a logical conclusion, that i think you would agree that as you described. in fact, the fbi has actually placed cyber assets and resources working with the counter intelligence resources
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at our national cyberintrusion task force, that are working hand in hand and shoulder to shoulder on these specific investigations. so i think technology plays a critical role in the advancement of technology, makes the threat that much more complicated. but i think there's been tremendous progress made by the fbi along with our partners at investigating these type crimes. and so i'm hopeful as we go forward that we would be up to demonstrate that we have been effective and will be effective in this arena. >> i wouldn't want us to judge that the fbi has not been effective. i've been out there, i see what you guys do out there. if i had to take my concern and turn it into just a single phrase, it wouldn't be the fbi is not effective. it would be the fbi is so busy trying to keep track of who is
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coming through the doors and come to the windows and tried to warn all the companies that they are hacking into, that there seemed is a resource constrained in terms of taking all that effort which could be devoted to tracking all these attacks and trying to help our businesses, there just isn't the capability or enough capability to sit down and go through putting a prosecution package together, working through the intelligence agencies and doing all the other steps that need to be done. so in many ways i'm kind of throw you a friendly question saying, let's let us help you do what needs to be done in terms of the resources. i would want to take anybody off of what you're doing out a at in tgif in her to put enter to put prostitution packaged good that someone like having a robust response of the country that we are starting to, for want of a better example invite chinese colonels and generals who are behind pulling this kind of thievery off.
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>> i think another part of what i think is important is, and you described it, is the threat is so immense that that's what makes this outreach effort so important to what we are doing and bring in the private sector and academic institutions to work hand-in-hand with us so we can actually try to get out in front of this threat. by your absolute right. the threat is so immense that the fbi cannot take this on alone. and whatever necessary help that we can get in those other industries, sectors, is of great help to us. >> there's a provision in the last appropriation bill that requires the department of justice to do a report for us looking forward, looking out a couple years and thinking about what the structure should be
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like for addressing this particular threat. it's exploding as you know and it explodes even further every year. it grows at massive levels. i'm not convinced at this point that the present setup makes sense. if you look at another area that has exploded, if you look at what happened with aviation and what its effect was on the conduct of warfare, you started with the army air effort as southern part of the signal corps, and they became a subpart of the army and was really until after world war ii that you had a full on u.s. air force. and since then we have been a very successful leader in the theater of military operations, but until then we really weren't set up right.
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i'm not convinced that we are set up right, and i would invite you to comment on that but let me also ask a question for the record that you can take back to headquarters. how does it make sense to have these kind of cases perhaps in your counterintelligence division, perhaps in the cyber division, perhaps in the criminal division, how do you sort a most those three divisions to have it be efficient and smooth flowing? because i understand that each of those different sections has a piece of this. >> i think the first part of your comment is, are we structured right, and i will tell you that i look at this on a daily basis. it is certainly a priority for our director, asked to look at our we efficiently and
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effectively addressing the threats. and i wanted in the counterintelligence division, economic espionage has become a priority because of the expansion of the threat. so there are always ways that we we're looking to better address this. some of the more significant efforts that we've made is to really have outreach. and i can't stress how important it is for this process and what benefits we have seen from that. we have expanded our contacts across the country to 15,000 contacts. we are conducting over 7800 presentations and briefings a year. and we are starting to see, this is the major garrett is relationships, is starting to pay off in the fact that companies are starting to come to us, academic institutions are actually coming to us early on and calling the contact so we can get engaged in the problem at the very early period, versus after a bad actor has left the company with two or three terabytes of information and has
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already left. so that is absolutely a victory for us in this process, but we have a lot of room for improvement that we will continue to do. and we are always looking for ways to improve that. >> welcome in the context of the, take this question for the record and get an official response from your organization. i'm interested in whether you think five years out, 10 years out, the civil division across all the separate parts of the bureau will continue to be a wise allocation, or whether we are sort of in a transient step towards what ultimate will be the way we address this. >> yes, mr. chairman. understand. >> thank you for your service. i know this is an immensely challenging area that calls on all sorts of different resources, and i'm proud of the way the fbi conducts itself in this area and i appreciate your service to our country.
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>> mr. chairman, thank you very much for having me here today. >> we will take a two-minute recess while the next panel gets itself sorted out. come back into action and. [inaudible conversations] [inaudible conversations]
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..
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for the company which has plenty of intellectual property to manage. he has worked there since 1984 and th the curtain pole he manas the company's patent portfolio, protection of trade secrets and licensing of technical data images, consumer products, trademarks and patents. prior to being appointed to the correct position he served as the director of global research and development strategy for boeing research and technology which is the company's advanced research organization we welcome him. one of you give your statement and we will open up for questions after that. please proceed. i'm grateful for the leadership of efforts to improve trade secret laws.
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the privilege to be a participant and provided a view on thof the challenges faced by american innovators. building first began making airplanes in 1915 from a small red boathouse in seattle and when much has changed since then the company remains unique in that we assembl assemble and tet of our competitive products right here in the united states for final assembly facilities for the products are located in the states of washington and south carolina. we have the facilities for engineering and manufacturing of the components in multiple states including oregon, florida, california, montana and utah. the defense base related to productioproduction as located n california, missouri, pennsylvania, texas, arizona and alabama. we've created more than 15,000 new high-paying jobs driven by the record back to blog with
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over 5,000 commercial airplanes. last year we paid over $48 billion more than 15,600 u.s. businesses which collectively support an additional 1.5 million jobs across the country. the significant contribution to the economy today and for the past 100 years as a result of the ingenuity of the highly skilled employees. innovating each step of the way we develop the most sought after products and technologies in the world. cutting-edge technology takes years to develop at an enormous expense approximately $3 billion of research and development per year and doubled up the the invn is protected as trade secrets. because of this country secret protections are vital to securing the intellectual property. they don't have one recipe for the secret sauce. we have thousands of trade secrets critical to maintaining our unparalleled success. unfortunately the viable engineering and business information is a significant risk. once publicly disclosed to the
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rights and trade secrets may be lost forever. the investments wiped out in an instant along with the competitive advantage to trade secrets provided. of course the wing is on guard to prevent theft of secrets. the vast majority of the business and engineering innovation is stored electronically. the digital age has brought productivity that has increased risk. at the moment, we could lose a trade secret through the breach in the network, through the disclosure by one of our employees or partners or in a state with one of the many suppliers facilities. the fear of death is not a concern just for boeing. the companies that rely on the trade secrets have as much or more to fear as big companies particularly if their survival depends on a single product or service. given the risk that companies face every day more needs to be done to deter the theme to become thieves from stealing our secrets. theft is a crime and we must send a message we will not stand
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by as th as the thieves parlor business is cornered our economy and to our jobs. thus we strongly support your efforts, chairman whitehouse come and also the efforts of the ranking member graham to call attention to the issue and provide all enforcement with additional tools to detour the trade secret theft. uniform trade secrets act provides a general framework for state legislatures to adopt trade secret protections that the standards can vary and complicate matters further. as such it is a concern of the u.s. companies that state action under the uniform trade secrets act may not in some cases be immediate and to prevent the loss of the trade secret so we also acknowledge the need for companies to have the ability to take immediate action of our own in federal court to prevent the loss of the valuable trade secrets and state courts and federal law enforcement cannot act quickly enough. therefore we would also like to thank senator coons and senator hatch for defending the trade secret act to establish the
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right for the company to file the federal district court in order to seize the property proprietary property contained in the trade secrets stolen from a company. we look forward to working with senator coons and senator hatch and support the efforts to encourage the congress to act quickly to pass this important legislation. we are also encouraged the new law and the discussion is passed with strength in overseas trade secret enforcement by raising awareness of the issue, promoting cooperation between u.s. and foreign law-enforcement and empowering our trade negotiators to encourage partners to similarly raise the bar. in conclusion we strengthened the trade secret law and thereby help protect our assets. thank you for your time in hearing our concerns. >> thank you mr. hoffman. i appreciate your testimony. the next witness is pamela, president and ceo of the center
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for responsible enterprise and trade also known as create.org. create is a non- governmental organization dedicated to helping companies in the supply chain members implement leading practices for preventing production and protecting intellectual property. prior to founding create commission is the vice president and deputy counsel for the global, corporate and regulatory affairs at microsoft where she had worked since 1996. and i have to say i have as a lawyer i am impressed by microsoft's legal shop particularly the pathbreaking work that they did to go after spam and people who are coming after them on the net with civil
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theories that dated back to probably 15th century english common law. it was quite impressive to see the doctrines apply to such a new problem and i think the microsoft complaints in that area ha have really set a modelt only for the rest of the corporate sector but even for the government enforcement in that area as well so you come from a good place. welcome. >> thank you very much turning. my name is pamela and i'm the ceo of the center for responsible enterprise and trade. i appreciate the opportunity to justify. create is a nonprofit dedicated to helping companies reduce corruption and intellectual property theft including trade secret theft. we provide resources to companies large and small that help them assess the risks and develoto develop strategies to t
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their trade secrets and other assets both within their organizations and in their supply chains. in today's integrated global economy, companies that succeed in turning their knowledge and know-how into a competitive advantage are the ones that will create new jobs into china's economic growth. increasingly companies rely on the trade secret laws to protect this knowledge. through a tremendous value but also makes them prime targets for the theft. create recently teamed up with price waterhouse cooper to assess the economic impact of the trade secret theft and divide the frameworprovide the e companies to mitigate threats. a copy of the report is attached to my written testimony. the report makes clear that the problem of the trade secret theft is massive and if it's material damage on the u.s. and other economies. if we are to energize our
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economy by enabling animated companies to protect their trade secrets, we need to focus on two key goals. first, we need to incentivize companies to take proactive measures and implement best practices to secure their trade secrets on the front end both within their own organizations and in their supply chain. second, we need a consistent and predictable harmonized system to provide effective remedies. theft occurs in many avenues and companies need different tools into strategies to protect against each type of threat after. businesses need to be particularly cognizant of risks that arise in the supply chain. the growth in the recent years of extended global supply chains comprising hundreds or even thousands of suppliers has brought tremendous benefits and has given many firms an enormous competitive edge. companies using extended supply chains often must share
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confidential and highly valuable business information with their suppliers which may be located in a different country with different laws and corporate farms. in the face of this reality it is absolutely essential that companies implement effective strategies to protect trade secrets not just within their own four walls but with their suppliers as well. in the report we recommend a five step approach for safeguarding the trade secrets and mitigating potential threats. we suggest the companies identify and categorize their trade secrets, conduct a risk assessment, identify the most valuable trade secrets to their operations, assess the economic impact of losing those secrets and five use the data collected to allocate resources and strengthen existing processes for production.
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create completed a pilot program of more than 60 companies are in the world that helped them assess liabilities and implement procedures to mitigate threats. based on a pilot program, we launched create leading practices a service designed to help companies improve and mature than management systems for ip protection and anticorruption. unfortunately no amount of protection can completely safeguard all of the trade secrets from theft. companies need to predict the enforcement and meaningful remedies against bad actors. recent high-profile criminal and first actions are promising and i applaud you, chairman whitehouse and ranking member graham for your focus on law enforcement. i'm also encouraged by the efforts to create a harmonized system for the owners of trade secrets that will serve as a model around the world. the problem that happens entirely and receives highlighted by the senators
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legislation is further to the worthy of a further study. the governments and companies play a role in improving the protection for trade secrets and in our view companies benefit from taking a more proactive role in assessing vulnerabilities and employing best practices to manage their risk. they also need an effective legal system to effect their rights when the know-how has been misappropriated. thank you for holding the hearing and giving me the opportunity to testify. i look forward to your questions. >> the next witness is the president of products in baltimore. he's owned it since 1998. the company exports basket and fabrications to 36 countries and has been recognized as one of the 5,000 fastest growing companies in the united states for each of the last two years. he serves as an executive board member of the association of manufacturers and as the chairman of the board of both
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the national alliance for jobs and innovation into the regional manufacturing institute of maryland he is also a member of the maryland commission on manufacturing competitiveness as well as the governor's international advisory council we welcome you here. please proceed. >> thank you chairman white house, senator hatch, members of the committee on crime and terroandterrorism thankandterroa focus on this critical challenge of trade secret theft and the opportunity to testify today. as you mentioned i am the president of marlin steel based in baltimore city. we are a leading manufacturer of custom wire baskets and provision sheet medication fabr. i'm proud to report that we also export to 36 countries and my favorite is china. we cater to the automotive, the medical, pharmaceutical industries. i'm here for three reasons. number one trade secrets are important not just for any
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factors that are big but also small manufacturers like myself. number two, america's trade secret laws and policies must keep pace with today's threats which increasingly are not only in her state of the international threats trade number three, manufacturers need your help to effectively and efficiently protect and enforce the trade secrets. we need to secure strong commitments in our trade agreements. like so many other manufacture manufacturers, we compete on a global economy and succeed through investing in ideas and innovations in hardware to the dedicated employees. when i got marlin in 1998 we were a local business and we made commodity basket. 118 employees can $800,000 a yer in sales. last year we almost hit $5 million in sales and now over 24 employees. we are a proud member of the national association of manufacturers. we average about 40 members, 40
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employees and the national association of manufacturers and we have 12,000 members. i also the cofounder and chairman of the national alliance for jobs and innovation with 380 members. both are working hard to strengthen the protection of trade secrets and intellectual property rights. we want to level the playing field for manufacturers and businesses throughout the united states. trade secrets are more important than ever and include things like drawings, proprietary processes, software and the formulas. all of these things are very valuable to the nation. $5 trillion for public companies and even more when you include the small companies. small companies our secret sauce are those trade secrets. that's our intellectual property. we leverage the expertise with more than 20% of them are mechanical engineers. they come up with specific
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client performance characteristics that make us unique and different and our chinese competitors. some people think almost 3% of our gdp is lost to these trade secrets being stolen. and our grandparents day trade secrets were stolen by individuals across town that would steal some of the customer lists. now it can be done on a thumb drive and sold to government or chinese companies across the world. the cyber incursions are very threatening to us. we have lasers and our factories, robots. if it could happen to the system they could manipulate to the equipment and hurt our employees and that would be devastating to us. us. what i'm most proud of as we've got over 9,800 days without a safety incident. if some foreign national were to break into the system and manipulate the systems they could hurt our team. we are doing everything we can to harden the network. we spend so much time hardening the network that we could hire
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another unemployed steel worker to fill the job rather than spending all this money on these activities. the good news is washington is starting to recognize the problem and we need washington to do three things. first of all, we need you to have strong operational collaboration between federal agencies. we cannot have the silo approach we have right now. we need the fbi cooperating in the justice department cooperating with customs and tsa. we all have to work together. number two, we need access to the & for trade secrets. well conceived legislation recently introduced is going to give us the ability to pursue people in a federal level. finally, we need to meet the global challenge of trade secret theft with global solutions. good trade agreements to stop these facts. in conclusion, chairman white
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house, senator hatch, trade secrets are vital for manufacturers of small and large. america's trade secret laws and policies must keep pace with today's threats. manufacturers need your help to ensure they can effectively and efficiently protect and enforce their trade secrets. i applaud your attention to this challenge and your focus on solutions. strong global partnerships and closer collaboration and federal agencies and between government and business and with the improvements to these laws including federal, civil enforcement we could have a real impact we desperately need now. thank you for the opportunity to testify this afternoon. i look forward to answering questions. thank you. >> the final witness is douglas norman vice president and counsel for eli lilly and company. he serves as a member of the board of intellectual property owners association and as the chair of the national association of manufacturers
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subcommittee for intellectual property. mr. gorman previously serves as the 2002 cochair of the intellectual property and antitrust task force to the united states council for international business. welcome mr. gorman, please proceed. good afternoon chairman white house, mr. hatch and other members of the subcommittee thank you for the opportunity to testify today. on the issue of great importance not only to my company and not only to my industry that all segments of the american economy. eli lilly and company was founded in indianapolis indiana. on may 10, just last saturday, lily celebrated its 138th birthday as a u.s. company. our mission is t to discover and develop medicines that help people live longer, healthier or active lives. our major areas include therapy for cancer, diabetes and mental
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illnesses. to fulfill this vision will we must rely on patents, trademarks and trade secrets. unfortunately like too many of america's firms lily has been the victim of trade secret theft. lilly is a member of the coalition across the sector a group of companies that can separate the harmonized federal civil this appropriation. we are pleased to support the defendant trade secrets act s. 2267 that would've published this objective and we thank the senators for their leadership and we are also encouraged by your work, chairman white house and ranking member to ensure law-enforcement has the tools it needs. by the committee's work is
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important to the shared objective i and improving the effectiveness of efficiency to the trade secret remedies. trade secrets are a form of intellectual property and part of the backbone of the information-based economy. whether you are a major pharmaceutical firm white eli lilly or startup software company coming for trade secrets are a big part of what sets you apart in the marketplace and their protection is vitally important to maintaining a competitive edge and keeping workers on the job. unfortunately, companies that are creating jobs in america are increasingly the targets of sophisticated efforts to steal proprietary information harming our global competitiveness of trade secrets are particularly vulnerable to theft, given the rise of global supply chains into rapid technological and the rapid technological advances that have resulted in greater connectivity. if it can come through cyber attack, voluntary or involuntary disclosure by ann lee or by a
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joint venture partner. the economic espionage act makes the theft of the trade secret in federal crime and an array of states will provide civil relief. the tools themes use in their attempts to steal american trade secrets are going more sophisticated by the day however. our laws must keep pace. the eea has a statute of limitations. we very much appreciate the cooperation we get from federall law enforcement, the fbi and the department of justice have limited resources at the time and will never be in a position ttheposition to bring charges il cases of these trade secret theft. state law provides an important right for the trade secret owners to bring a civil action for relief into the state trade secret laws developed and made sense at the time this appropriation was largely a local matter but for companies that operate across the state lines and have their trade secrets threatened by competitors around the globe the array of the state law is inefficient and often inadequa inadequate. it's also inconsistent with how
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other forms of intellectual property are protected to a trade secret theft today is increasingly likely to involve the movement of the secret across state lines and require swift action by courts to preserve evidence and protect trade secrets from being bi- folds. this is particularly true when asked by an individual looking to flee the country. once a trade secret has been forged or is made known to have -- or has been made known it is often irritable. we are pleased that he would address the limitations and to provide a trade secret owners the same ability to enforce their rights in federal court as the owners of other forms of intellectual property have. the support for the legislation from the companies focused on diverse areas such as software from a biotechnology, semiconductors, medical devices, after cultural material demonstrates the importance of the harmonized federal civil remedy. the companies that have already indicated their support often disagree on other areas of
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intellectual property protection. but we are united on this front. we also look forward to working with the chairmen and ranking member graham on ensuring law enforcement has the tools of the prostitute trade secret theft. we look forward to working with the senator and agree that it's important to study the ways in which we can address overseas theft effectively. in conclusion american companies are competing globally and the know-how is subject to theft anywhere. the solution that provides consistent and predictable enforcement is therefore essential to our global competitiveness. the defendant trade secrets act will establish the trade secret and serve as an important base for international harmonization efforts really urge the committee to consider the legislation and for all senators to support it. thank you for the opportunity to testify today. i look forward to your questions. >> thank you mr. norman.
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before i turn to them for their questions, let me ask unanimous consent that chairman blake lady statesmen to be entered without objection. let me ask each of you very simply and quickly using your own words and experience explain what you think the scope is of this problem for the country and its industries starting with mr. hoffman. >> it is a tremendously big problem for us as a company and i think more broadly as an industry because of so much of our intellectual property protected as trade secrets. and right now a lot of those are vulnerable considering the changing landscape, sophistication of the means of
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which our intellectual property and trade secrets can be obtained. so anything that helps to improve law enforcement ability to protect our trade secrets and allows us to be more secure in keeping the secrets they are still valuable is very much appreciated. >> the scope of the problem? >> with companies having almost 75% of the value of the assets like intellectual property including trade secrets, the problem is quite significant and in the create pwc report we attempted to put a figure in the magnitude of the problem looking at the different thread actors involved, looking at the fact that u.s. companies and other advanced economies rely on the distributed supply chains increasingly and we looked at other illicit economic activity as a proxy for this since it is
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a figure that is very difficult to get its arms around because companies themselves don't know the magnitude of the trade secrets they have as well as when there is a trade secret theft. we looked at other examples of illicit activity, corruption, money laundering but serious threat actors and came to a figure of one to 3% of gdp quite significant. >> thank you. >> this problem is out of control. we need your help. we are being attacked daily. what this will have if we can get the legislation enacted this will save jobs. and baltimore city unemployed steel workers will be employed. we are getting things still went left and right and we need your help. >> top that for clarity by the way. >> i will try to add some
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clarity myself. the issue is enormous. i could speak on behalf of the pharmaceutical firms that spend billions of dollars every year doing research and development. as we move forward and try to develop life-saving medicines, we continually build chemical platforms and pharmaceutical platforms in hopes of reaching the point we can apply for patents. what we are seeing are numerous instances where interlopers are stepping in and trying to steal our trade secrets on our formula prior to the time that we can reduce the state patent application. it very often may take two or three perhaps longer, to three years or longer to do enough research to get to the single molecule that we think will be able to carry on into the clinical trials. if we lose the trade secrets and all of that formula prior to the
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time we can reduce that to a patent application the loss is irrevocable so we may spend ten, 20 to $30 million building a chemical platform and rich diversity of a number of compounds and if any one of those is stolen from us prior to the time we can obtain a patent than it is lost forever and therefore the public gets to enjoy the fruits of the research once it's gone. >> thank you very much. senator hatch. >> i should say tha both to youd senator kerry's before you got here your names were somewhat crazed over and over for the legislation. it's like you were summoned by those voices. >> that's always unusual. [laughter] >> we are happy to have you here i'm just interested mr. norman
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and hoffman to respond. the trade secrets are som of soe most robust in the world and we continue to make those provisions and protections even stronger but protecting trade secrets in the countries is a challenge it seems to me facing many of the transnational companies. something i'm very concerned about. how many changes have an impact either positive or negative and what other countries are doing it in this area and do we need to be careful here? mr. norman, you can go first. >> thank you again senator hatch to the legislation that you've introduced. we greatly appreciate your
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leadership. the instances of what it would do on a positive standpoint is we need the village of station to obtain a federal trade secret remedy particularly the ability to seek and export a seizure of materials and prevent further disclosure or divestment of that information broadly would be a very positive gold standard for future discussions on the trade secret laws around the world with our major trading partners. it's important i believe to get beyond the state trade secrets which are often unwieldy and difficult to end boards across the state lines simply because the procedures are not always as setuset up to work very well on those lines but with a federal standard and the appropriate kind of control by th i believee
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can show the rest of the world with gold standard would look like as far as giving us the right on our own to take a private civil action and protect our trade secrets. thank you. >> i fully agree with my colleague. any opportunity for the trade negotiators to be able to point to improvements in the trade secret law protection in the united states and thus strengthen the laws outside of the borders with the global companies such as ours will be very helpful to protecting our trade secrets. >> and let me ask a question for the whole panel and that is trade secrets also seem to be a lot more difficult to protect and patterns and i understand there may be that to be the best practices based on the industry and the type of process or information you are trying to
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protect. so i'm very interested as a practical matter how do you determine what measures are in the trade secrets? >> when it comes to the trade secret versus the patent, we based that upon the reverse engineering capability of the innovation but once we decide to go the trade secret route, we have to have the process and the systems in place in order to assure that those secrets are secure and as mentioned previously that 60% of what we felt we buy from others as a company. so the sharing of the intellectual property across the supply chain domestically and internationally is an area we have to be careful they have the same type of procedures in place that protecto protect our intell property at the same level.
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>> in our work with companies around the world we found this is not very mature inside the businesses were with their supply-chain part or as. so in that creates to work with pwc we got their arms around how to manage the best property and being able to identify and categorize what you have and where it is in the company is critical whether you are a small company or large company that has global operations. we also recommend companies identify who are the primary threat actors come who's interested in the trade secrets and intellectual property and the potential vulnerabilities in their policies and procedures and in their internal controls inside of their company and in the supply-chain. and also identified the trade secrets that would have the greatest impact on the company's operations and business. also looking at the economic impact of the loss of the trade
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secret and the magnitude that would have on the business and finally taking all of this information and allocating resources to better protect your trade secrets, thinking of it as an investment and not just a cost. >> thank you senator whitehouse i would like to thank you for chairing the hearing and for the great work you and senator graham have done to make sure that we protect the intellectual property. we have heard from an array of witnesses today the picture of what is at stake up to $5 trillion of the value held in america's intellectual property and in the form of trade secrets we have criminal law prosecutions for the trade secret theft and the economic espionage act as a platform and beginning but as we have heard there are significant gaps and i applaud the chair today for improving their efforts to deal with that. the department of justice has
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many prerelease and resources so it is not surprising to me there were 25 cases brought past year. before he leaves i need to say my profound professional thanks to senator hatch for being a good leader on this issue. >> this young man has been a good job. >> even got a young man out of that. [laughter] as a former intern for the committee i will say i never imagined there would be the day that senator hatch would be patting me on the shelter saying i look forward to passing a bill with this young man at the time i was passing cups of coffee. it's a tremendous sense of satisfaction i've gotten through working with senator hatch and eli lilly and i'm thankful to the national association of manufacturers and the coalition
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for the protection of trade secrets for their input as we've crafted the bill and tried to get to a place that makes sense and that can help stem the gap to ensure that we defend the trade secrets. let me ask a series of questions if i might before i run out of time boeing does business as your testimony demonstrates. most of the significant threats today originate from other countries around the world. can you speak to how the respect have varied around the world and how our law domestically and with the might and act in terms of measures to strengthen the domestic law could influence the protection internationally? >> i would be glad to. thank you for the question. when you look at trade secret theft regardless whether it is coming from domestic or
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international it hurts building and other companies but the best thing we can do as a country is to set the standard and provide the tools necessary for the efficient and effective protections of the trade secrets and give those standards to the trade negotiators depressed their counterparts. >> i appreciate that response and if i might from the manufacturer that has grown significantly under your leadership, trade secret theft can and does xanax essential part if a thief succeeds it can literally mean the end of the business and in your case very harmful to eli lilly or bowling or microsoft or others that the loss of trade secrets could literally mean the end and securing the secrets and asserting your rights in court could also be expensive relative to the size of your business and
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i saw this in my own experience in the house counsel for any factoring. can you speak to how the existence of a federal private right of action would reduce the cost of protecting trade secrets now having one uniform standard that might strengthen your ability to go after those who would steal your trade secrets? >> it is going to help us go around the state system which is very inefficient and very slow and very expensive. little companies can't afford having lawyers in five different states on retainers trying to go after a bad actor. it would be much more elegant if we could have federal jurisdiction on this matter. it would be much more efficient. your bill would tremendously accelerate our ability to stop bad actors and get good results.
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>> if i might, one last question. thank you again for your hard work and leadership and one of the sections we worked on was the injunctive relief. if you would explain why an authority like that is important to other companies facing trade secret theft. >> we often run into situations where we find that an ex employee has left and is going to work for a competitor and we find out such that once they turn in their computer that there's been a download of a number of documents which contain highly confidential lilly trade secrets. these almost always have been on late friday afternoon and therefore the best part about the seizure aspect of the bill
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that's currently pending is the fact that we could go to federal court and in one action kick out an ounce of prevention rather than worrying about a pound of the cure week or two later when we can get the indiana state courts involved with the new jersey state courts or perhaps both indiana and new jersey leading to a whole lot more expense if we had to go through state court a whole lot more risk because we may not be able to isolate and seize the materials as quickly and therefore a federal cause of action where we could go to a single court and instituted power of the federal court system to seize the stolen materials would be extraordinarily helpful in those situations and i thank you for your leadership. >> thank you for your estimate. if my math is right on hundred 50 to 400 billion a year.
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senator white house and senator graham your leadership in strengthening the protection for american companies is admirable and i look forward to working with you to pass these bills in tandem in a way that can strengthen the defense for the innovations of millions of americans companies. >> now the distinguished member lindsey graham. >> i seem to have two challenges protecting the nation against what is an inevitable cyber attack on the large-scale. the question is will we do something about it in time to diminish the effect? that's one problem the nation faces from criminal terrorist enterprises and nationstates and the other is the private sector trying to do business in an interconnected complicated world and one of the things america always has had going for her is that we are pretty innovative and we are always thinking outside of the box and other people are pretty good at
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copying. from a criminal point of view you're trying to put teeth into this area of the law. when you are overseas representing boeing were trying to do a joint venture what do you worry about the most? some countries require you to have a 51% partner is that correct? >> it varies by country but in some cases, you could have a majority share and in some cases you could have a minority share. >> whatever the laws are typically it is some type of partnership yes. >> the partnerships are created by the host country, not -- i guess you can choose your own partner but to do business will have a local partner for lack of a better term. >> out ohow does the private ser and the government interact when there is a trade secret theft or
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intellectual property theft in the foreign country? what more can we do and how does the system work? cynic i am not an expert in those areas but i can tell you that we are a globally spread company and when we make the decision to go to a company and do business, we study the law and how we need to establish ourselves as a business and we are prepared to defend the trade secrets the best we can knowing it will bknowwhen it will be a t environment than we have at home. >> mr. norman when you do business overseas what is your biggest concern? >> the biggest concern is losing our trade secrets and the value of all the investments we put in. that's always an issue and we are quite circumspect about the type of research, development or
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disclosure that we would make in the institutions where we do business out of the united states. >> if they would hold the individual would it make business difficult overseas clucks >> i believe if we could use that by the standard by which we could get other countries to change their law and harmonize them in the appropriate way we would like to see the trade secrets, yes. >> mr. hoffman come is it fair to say in the international arena in many countries it's the wild wild west? >> there are different threat levels and i agree with my colleague that we choose carefully about what kind of work we do out of the united states. >> the more we get this right or opportunity to create jobs at
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home and abroad. is this an impediment to job creation? >> i believe anytime we lose the fruits of the labor there are scientists and engineers in the developing drug products it is a huge jobs issue. we employ thousands who will work years to develop the drug product and if the competitor pics to the way it is devastating. >> i want to think the white house i've never known anyone more knowledgeable about the subject matter so i look forward to seeing if we can get the dough on the finish line here. >> it's been a pleasure working on a variety of cyber issues and i think him for his leadership. senator the floor is yours. >> thank you for being here. i apologize for not being here earlier and i hope i'm not plowing old ground but i am
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concerned about the way trade secrets are being stolen. i've introduced legislation and the future of the research act which allows the owner of the trade secrets to bring the federal court against the person that stored the trade secret if they are abroad or acting on behalf of an entity. there was a recent report that cited a stir debate co. survey on both successful or unsuccessful attempts to compromise trade secrets information at the incidences where the nationality of the primary beneficiary is known 70% of the time. do you see this as a growing problem in the foreign nature of
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the threat? >> and an integrated economy with the global supply chain we are going to increasingly see the challenge with trade secrets. american companies benefit from having participated in the global supply chains and as they move their business overseas, whether it's a supplier overseas or customer overseas they need to understand the environment in which they are working. we are working with companies around the world including in china and other markets but also want to make sure their systems and better protect intellectual property that we advise companies to understand the environment they are entering and put business processes in place to better manage their intellectual property insid in t of their business as well as with their supply-chain. >> thank you. mr. hoffman yoo noted that the
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doj is under section 31 was against the defendant that stalled trade secrets from the space shuttle and adult for the rocket to benefit the foreign entity and you've also seen an uptick in this activity. >> in that particular case the gentle man was charged with stealing trade secrets and there was no particular focus on what happened to those in fact once it leaves the damage has been done and i might b in by mike do department of justice colleagues regarding those issues. >> what are they doing to combat this? what measures have you taken? >> in terms of our overseas presence we hold our subsidiaries in relationships with partners to the same level we have in the united states. the complexities are we are in a
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different country and we have to adhere to their laws and its harmonize with hours and effective as ours. >> do you think it's important to have legislation that is protection and takes companies against the mistake and foreign trade secrets as all of you agree? >> we will proceed with the legislation and i appreciate everybody. if you could do that more audibly next time that would be great. thank you for your testimony. >> let me ask one or two questions. there's been some reluctance on the part of the corporate victims of trade secret theft to engage in the criminal law enforcement process and one of the things we've heard has been taking that step rather than
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simply trying to bury things could make things worse as the trade secret rattled around and became more public and further compromised the company's secrecy and advantage. is that something that is of concern or is there anything else we should be looking at in terms of having to do a criminal case that is deterring terminal victims from takinkernelthat coe of best means of redress? mr. norman? >> that is a deep concern that we have as we look at the question of criminal prosecution arising from the disclosure of trade secrets outside of the bounds of our corporate entity.
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i applaud you for the language that you had in your legislation concerning the ability to protect the trade secret even during the time the court is reviewing because it is often difficult to question witnesses and difficult to come forward with documentation and to seek expert testimony that can help prove the theft has occurred if you can't talk about specifically in an open court what that means of the disclosure was or what the subject matter of the disclosure was because once it has made its way into "it is no longer a trade secret and you lose it anyway. so, many of the mechanisms that have been proposed into the mechanism in particular that i'd seen in your legislation is a
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great leap forward in helping us move into an arena that we could help prosecute these cases. >> final question. you indicated earlier that one of the things we should focus on is improving coordination among the agencies you use the term silos. when i go out to the fusion centers if you will where the fbi leads for homeland security and they've got all the agencies there, they've got everybody represented up on screens and it looks like a model of interagency cooperation at least at the level obviously you had a different experience at the level of the attacks on your
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company and the experience you had but few articulate more thae specifically exactly what your concerns were about the silo problem of coordination. >> if we identify a bad actor we would like that company to import things into america and the agency from coming into america. the only way we are going to get their attention is by the wallet and if we can stop them from shipping into the greatest economy of the world we will get their attention. >> so your experience wasn't on the investigative side there was coordination rather than when the case is done you should be able to have as a remedy the company doesn't get reported that an additional penalty for them.
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>> precisely we just want everybody to work together and quickly resolve these topics and we just can't have each agency in their own little zone we have to have everybody working together and collaborate as much as possible and stop them from bringing their parts into america. >> let me thank the witnesses were coming in. this is a very helpful process for us and we have a lot of things going for us. for one thing it's a real issue that is causing americans to be hurt and very concrete and meaningful ways. second come a as you, as you've, couldn't be more bipartisan so i don't see us getting dragged into the partisan turmoil. we are following the regular order and having the hearings so that we can pull this together and move it forward but i hope very much that we will be able to make progress and the advice
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anand counsel of all of you that are here and some of whom have been very helpful in the legislation as well as in the testimony is something that we are all very grateful for and i think senator flake, senator hatch, senator coons and myself have put considerable efforts to address different aspects of the problem and i'm confident that we will all continue to work together and making the best products in the world and expanding your business is. thank you very much. the hearing will stay open for an additional week for anybody that wishes to add anything but subject to that, we are adjourned.

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